Low cost of living, rising demand and a bright future combine to make Tallinn one of the most promising investment opportunities in Europe.
Any investor will want to get in on the ground floor of the next big thing. That’s the exciting proposition from Tallinn, one of the up-and-coming cities in Europe. Combining old world charm with a vibrant nightlife and growing economy, the city offers rich pickings for property investors of all kinds.
Europe’s rising star
The old sits comfortably alongside the new in Tallinn. Its Old Town is one of the best preserved medieval cities in Europe and is recognised as a UNESCO World Heritage site. It originally rose to prominence thanks to its strategic location at the heart of Europe which helped it become a major trading hub.
However, the 21st century has seen it transformed into one of Europe’s premier destinations for working, living and tourism. With visitors streaming in from all over the world, and businesses opening up all the time, it offers a rich, diverse and thriving market.
Development is moving quickly, offering a unique appeal based on the community around it rather than just the value of the buildings.
The Rotermann City development has been hailed as one of the most elite and up and coming developments in the city. Its urban setting puts it right next to some of Tallinn’s most popular shops and restaurants.
A car free environment offers a safe, secure and pedestrian friendly atmosphere with all parking located underground. It’s a surprisingly tranquil pace of life in the city’s heart, offering modern, luxurious and spacious apartment, perfect for the high value customer.
A booming economy
Tallinn is the economic centre of Estonia and has benefitted immensely from the country’s economic emergence over the past decade. It is ranked fifth among European countries in the global economic freedom index and tenth globally. Its score of 77.7% has risen slightly in recent years, thanks to a higher score for government integrity.
The economy remains fundamentally strong despite the hit from COVID 19. Estonia has thrived since becoming a member of the Eurozone in 2011 and, while it has suffered during the pandemic, much like other countries, the future looks promising. According to the IMF, the economy is likely to bounce back strongly in 2021. It expects growth to hit 7.6% as a lifting of restrictions unleashes pent up demand.
Demand has been boosted thanks to a booming tourism market. Tallinn has emerged as a top tourist destination in the 21st century. Initially, it attracted young holidaymakers and was one of the most popular destinations for stag parties from the UK. However, over time the area has matured and is attracting a much more diverse group of visitors.
It has something to offer everyone from the old town’s unique history to the trendy nightlife in the centre.
However, the tourism boom is a mixed blessing. In 2019, there were four days in which tourism to the historic, but fragile, Old Town hit 10,000, double the previous year. 650,000 cruise visitors also arrived for short trips.
This surge in visitor numbers has attracted the attention of policy makers. Some have suggested 2021 should see the introduction of a tourism tax to protect the city’s historic infrastructure. Even so, it seems unlikely to impact the overall prospects of the city’s property sector.
Our experts say
“Tallin probably offers one of the most exciting opportunities in Europe. As somewhat of an emerging market, there’s a lot of room for growth. Estonia offers significantly lower prices than Sweden or the UK, but it’s followed a similar growth trajectory.
Forbes have identified Tallin as a growth hub thanks to Estonia’s wealth of knowledge workers, and track record in successful tech ventures including developing and scaling Skype, TransferWise and Pipedrive. Thanks to its drive for great workers, Estonia’s average salary has almost tripled over just 12 years – driving demand from professional tenants.
Tallinn offers investors that perfect blend of low entry price and high yield, making it ideal for those looking for a steady rental income. At the same time, it’s position as a relatively young market provides ample opportunity for capital growth”
– Matthew Lavin, Director
How to get there
Estonia is located between Scandinavia, central Europe, and Russia. Therefore there are multiple ways to travel over to Estonia by car. Be aware that motorist must pay a toll to enter the city of Tallinn.
While the larger cross-Baltic rail line is still very much a work in progress, you can conveniently take a train from Latvia and Russia. Estonian trains are spacious, comfortable, and clean, with free wifi offered by most local operators.
Tallinn airport lies just 4km from the city centre, making it easily accessible. The airport offers regular flights from Oslo, Stockholm in under 2hrs, and the flight from Helsinki is just 20 minutes. Additionally, there are direct flights from London Gatwick.
The ferry ride from Helsinki will take around 2-2.5 hours (except one ferry, 4 hours). The trip from Stockholm to Tallinn is a 12-hour overnight ferry ride. The following ferry operators service the lines. Tallinn port is located a 15-minute walk from the city centre.
Tallinn lies on 29m above sea level. The climate is cold and temperate. Tallinn has a significant amount of rainfall during the year. This is true even for the driest month. The average temperature in Tallinn is 5.3 °C | 41.6 °F. Precipitation here is about 671 mm | 26.4 inches per year.
If you’re looking to escape sweltering summers, Tallin offers a comfortable alternative. July is the hottest month in Tallinn, with an average temperature of 18°C (64°F). The months of May, June and July are very sunny. The month of June is exceptionally bright, with a monthly average of almost 300 hours of sunshine.
The cold season lasts for 3.9 months, from 24 November to 19 March, with an average daily high temperature below 3°C. The coldest day of the year is 7 February, with an average low of -7°C and high of -2°C.
Tallinn has transformed itself into a modern 21st century city while still respecting its heritage. It’s a delicate balancing act, but it gives the city a unique charm. Property prices are growing but remain relatively affordable compared to other destinations.
On top of this, the government has created a favourable atmosphere for foreign property investors.
Estonia also has a favourable taxation environment. A company’s profits are only taxed on corporate income or the gain on dividend payments. There is also no corporate income tax on reinvested profits. There are no restrictions on the rights of foreigners looking to buy property, and the government also offers legal protections for property rights. This favourable environment is one reason why many foreigners set up holding companies in Estonia.
Foreign investors may also benefit from E residency rules which provide individuals and businesses with a unique opportunity of virtual residence rights. Under these rules, E residents will be able to set up and operate a business entirely online from any other country with minimal expense. All E Residents will be issued with a government ID, much like regular citizens.
Property development has grown steadily in recent years to cope with the rising demand with developments of all kinds sprouting up all over the place. These vary from high end luxury apartments to holiday rentals, office/retail space, or accommodation for professionals.
Rental yields have been rising consistently over the past few years. Smaller apartments offer the most value with yields hitting between 6% and 7%. Prices stuttered a little in 2020 thanks to the pandemic but were on an upward curve before the crisis. The release of pent-up demand points to positive growth in 2021 and some excellent returns on investment.
An exciting opportunity
Overall, Tallinn offers an enticing recipe for property investors. The government has created a favourable environment for foreign investors, making it easy to buy property and set up companies. The economy may be facing headwinds from the pandemic, but the underlying picture is strong. With a vaccine rolling out across Europe, 2021 looks like seeing a strong economic bounce back.
This will reflect on property prices. The market has been suppressed during the pandemic, which means there is pent up demand ready to be unleashed. Those getting involved now stand to benefit from affordable prices and the prospect of positive short-term returns.